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If this week’s tech earnings reports had a singular message, it’s that expectations for the companies in the so-called Magnificent Seven (Amazon, Alphabet, Apple, Meta, Microsoft, Nvidia, and Tesla) have become so outsized that beating expectations is simply to be expected.
Across the board, things were remarkably solid, and at times stellar. Microsoft delivered a 16% YoY rise in revenue, coming in at $65.6 billion. Google parent Alphabet recorded a 15% YoY jump in revenue, reporting $88.3 billion for the quarter.
Apple and Meta also posted revenue beats, and yet, the market didn’t exactly cheer. The beats from Microsoft and Meta were both greeted with market slumps, and Apple also dipped in the immediate aftermath of its report.
“Anything less than [a 5% to 6% earnings beat above Wall Street expectations], I would be disappointed,” Venu Krishna, head of US equity strategy at Barclays, told Yahoo Finance, regarding Big Tech stocks. “Anything above that is phenomenal. They will be back in complete control compared to the rest of the market.”
One reason the market may have reacted with a “meh” is AI fatigue. As tech companies continue to pour money into AI investments, signs of the payoff for those investments need to be increasingly clear. “I think we’re getting to the point where AI enthusiasm and potential is not enough. These companies…are not quite delivering the growth that is priced into them,” Ross Mayfield, investment strategist at Baird Private Wealth Management, told CNBC.
Of course, another side of the story is simply that when you’re really, really good at what you do, people tend to have high expectations.
“The bar is already very high simply because valuations are very high,” Russ Mould, investment director at AJ Bell, told Bloomberg. “Investors have become accustomed to the Mag7 and tech and AI-related names not just beating forecasts but smashing them—and then raising guidance for the next quarter.”
Call it great expectations, call it karma. In any case, we’re not exactly jealous.